Liquadating

Over the last decade, a number of firms have been established to provide trustee services in addition to trust departments of banks.A liquidating trust is generally considered a grantor trust for tax purposes.The trust will be considered a liquidating trust with the primary purpose of liquidating its assets.Should the purpose of the entity change, such as to carry on a for-profit business, then the entity will no longer be considered a liquidating trust.However, a partner generally must recognize gain on the distribution of property (other than money) if the partner contributed appreciated property during the 7-year period before the distribution.A partnership generally does not recognize gain or loss because of distributions it makes to partners.

The newly formed trust is governed by a trust agreement executed between the former fund and the trustees before liquidation of the fund.The fair value of the contribution to the liquidating trust would represent the new owner's basis in the liquidating trust.Similarly, in the case of a liquidating distribution from a partnership, the business assets are deemed to have been distributed to the partners and transferred to the liquidating trust.A business trust is either treated as a corporation or partnership for federal income tax purposes.Since the business assets are deemed to have been distributed to the owners and then transferred to the liquidating trust, there will be an immediate recognition of a gain or loss from liquidation of the former business by the owners.

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